YieldBoost Lithia Motors From 1.2% To 10.9% Using Options
November 15, 2016 at 11:39 AM EST
Shareholders of Lithia Motors Inc (LAD) looking to boost their income beyond the stock's 1.2% annualized dividend yield can sell the June 2017 covered call at the $95 strike and collect the premium based on the $4.90 bid, which annualizes to an additional 9.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10.9% annualized rate in the scenario where the stock is not called away. Any upside above $95 would be lost if the stock rises there and is called away, but LAD shares would have to climb 9.9% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 15.6% return from this trading level, in addition to any dividends collected before the stock was called.